Q4 2025 Ashland Global Holdings Earnings Call
Speaker #1: Good day and thank you for standing by . Welcome to Ashland's fourth quarter fiscal Year 2025 Earnings Conference Call . At this time , all participants are in a listen only mode .
Speaker #1: After the speaker's presentation , there will be a question and answer session . To ask a question during the session , you will need to press star one one on your telephone .
Speaker #1: You will then hear an automated message advising your hand is raised . To withdraw your question , please press star one . One again .
Speaker #1: Please be advised that today's conference is being recorded . I would now like to hand the conference over to your first speaker today , Sandy Krugman .
Speaker #1: Sandy , please go ahead .
Speaker #2: Thank you . Hello , everyone , and welcome to Ashland's fourth quarter fiscal Year 2020 Earnings Conference Call and Webcast . My name is Sandy Klugman , and I recently joined Ashland as the company's director of investor relations .
Speaker #2: I'm excited to be stepping into this role at a pivotal time for Ashland and our stakeholders , and I look forward to connecting with many of you in the months ahead .
Speaker #2: Joining me on the call today are Guillermo Novo chair and CEO William Whitaker CFO , as well as our business unit leaders , Alessandra Faccin Life Sciences and Intermediates .
Speaker #2: Jim Minakuchi , personal care and Dago Caceres Specialty Additives . Please note that we will be referencing slides during today's call . We encourage you to follow along with webcast materials available at Ashland Comm under Investor Relations .
Speaker #2: Please turn to slide two . As a reminder , today's presentation contains forward looking statements regarding our fiscal 2026 outlook and other matters as detailed on slide two and in our form 10-K .
Speaker #2: These statements are subject to risks and uncertainties that could cause future results to differ materially from today's projections . We believe any such statements are based on reasonable assumptions , but there is no assurance these expectations will be achieved .
Speaker #2: We will also reference certain adjusted financial metrics , both actual and projected , which are non-GAAP measures . We present these adjusted figures to provide additional insight into our ongoing business performance .
Speaker #2: GAAP reconciliations are available on our website and in the appendix of these slides . I'll now hand the call over to Guillermo for his opening remarks .
Speaker #2: Thanks , Sandy . And welcome to everyone joining us .
Speaker #3: Today . I'll provide an overview of our fourth quarter performance , discuss our strategic priorities , and share our guidance for fiscal 2026 .
Speaker #3: Please turn to slide five . Let's begin with a summary of our recent performance . Ashland's fourth quarter results reflect our disciplined approach and ability to deliver in line with expectations .
Speaker #3: Despite ongoing macroeconomic challenges . We maintained strong margins and achieved revenue and EBITDA consistent with our prior guidance . Our continued focus on execution , along with momentum across our globalized and innovative initiatives , helped offset areas of competitive intensity and muted demand .
Speaker #3: Q4 sales were 478 million , down 8% year over year , primarily due to portfolio optimization initiatives . Excluding these actions , sales declined 1% .
Speaker #3: Adjusted EBITDA was 119 million , down 4% year over year , including an 11 million impact from portfolio optimization . On a comparable basis , adjusted EBITDA increased 5% , with margins expanding to roughly 25% .
Speaker #3: Importantly , these results reflect the early benefits of our strategic actions and position us well to improve performance . Please turn to slide six .
Speaker #3: Now , let me briefly summarize the performance of our business units . Life science delivered steady performance reflecting the benefits of our sharpened focus on higher value pharma demand remained resilient with continued strength in cellulosic excipients , tablet coatings and injectables .
Speaker #3: There was some weakness in nutrition in the quarter , but the team has recently secured share gains that support a return to growth next year .
Speaker #3: Our innovative and globalized strategies are supporting quality growth and strong margin durability. Personal care generated broad-based gains across end markets and regions while maintaining strong profitability.
Speaker #3: Discipline , execution and a sharpened commercial focus are driving results in a muted environment . Investments in Biofunctional actives and microbial protection delivered momentum , with both lines returning to healthy growth in Q4 .
Speaker #3: Specialty additives executed well in a mixed market, increasing quarter over quarter. EBITDA in all end markets outside of coatings improved, including performance specialties, construction, and energy and resources.
Speaker #3: Our gains were more than offset by weaker coatings in China , India and Middle East and North America . We continue to direct resources towards high value applications , strengthening our position ahead of the coatings recovery .
Speaker #3: Intermediate faced headwinds from lower pricing and production volumes , which impacted profitability . The team remains focused on optimizing its operations against a challenging market backdrop .
Speaker #3: Stepping back from the segment , I want to highlight how our transformation efforts are shaping Ashland's path forward . Portfolio optimization and restructuring are complete , and the organization is focused on consistent delivery .
Speaker #3: As we've discussed before , approximately 85% of our portfolio serves consumer facing end markets . These areas tend to be more stable and less exposed to economic cycles , providing a measure of consistency and resilience in the face of the broader macroeconomic volatility .
Speaker #3: The 60 million . Manufacturing Optimization program is helping margins , though the timing of the impact is later than we initially expected . William will discuss the drivers later .
Speaker #3: In the quarter , life , science and personal care each delivered margins close to or above 30% . Specialty additives achieved its highest margins of the year , while intermediates continued to face margin pressures in a challenging market on a comparable basis .
Speaker #3: Adjusted EBITDA increased year over year across all business units except intermediates . All globalized platforms returned to healthy growth in Q4 , and we outperformed our innovation targets .
Speaker #3: In summary , even as external conditions remain unpredictable , we continue to drive results through disciplined execution and clear focus on our priorities .
Speaker #3: With our focused portfolio , cost actions gaining momentum and growth initiatives taking hold , Ashland is well positioned to deliver resilient long term value .
Speaker #3: I'd like to now turn over the call to William to provide more detailed review of the fourth quarter financial performance . William .
Speaker #2: Thank you . Guillermo .
Speaker #3: Please turn .
Speaker #2: To . slide eight .
Speaker #3: Sales were .
Speaker #2: $178 million , down 8% from last year , with portfolio optimization actions accounting .
Speaker #3: For a . $38 million reduction .
Speaker #2: Excluding those changes, sales were essentially flat.
Speaker #3: .
Speaker #2: Down 1% with steady demand in most .
Speaker #3: Areas .
Speaker #2: We saw volume gains in personal care , which helped balance softer results in specialty additives . While life sciences held steady , pricing was down about 2% overall , mainly reflecting targeted pricing adjustments in life sciences from Q2 and continued pressure in intermediates , excluding intermediates , pricing was down just 1% and foreign exchange provided a modest 1% lift .
Speaker #2: Adjusted EBITDA came in at 119 million , a 4% decrease year over year . Portfolio actions accounted for an $11 million headwind , but if you set those aside , underlying EBITDA improved by 5% , marking a return to growth on a comparable basis .
Speaker #2: Lower Saad from restructuring actions contributed to margin expansion alongside improved mix . These gains were partially offset by lower pricing and production volumes , while raw material costs remained stable .
Speaker #2: Our adjusted EBITDA margin expanded to 24.9% , up 110 basis points from last year . This was our most profitable quarter of the year , and in line with our long term margin target of 25% , adjusted earnings per share , excluding acquisition amortization , was $1.08 , down 14% from the prior year , disproportionately impacted by higher effective tax rate in the quarter .
Speaker #2: The increase reflects jurisdiction , jurisdictional tax changes and limited use of foreign tax credits . We expect our effective tax rate to be in the mid 20s next year .
Speaker #2: We delivered another quarter of solid cash generation, with ongoing free cash flow totaling $52 million. That's a healthy conversion of adjusted EBITDA, reflecting our disciplined approach to capital spending and working capital.
Speaker #2: While Q4 ongoing free cash flow was down year over year , primarily due to higher accounts receivable from strong September sales , it remained consistent with recent expectations at quarter end , our total liquidity stood at just over 800 million , providing us with plenty of flexibility .
Speaker #2: Net leverage is 2.9 times , and with $103 million tax refund received in October from our nutraceutical sale , net leverage is now closer to mid twos .
Speaker #2: This positions us well to continue investing in our strategic priorities while maintaining discipline in capital allocation . Now let's turn to our business unit leaders for a closer look at segment performance .
Speaker #2: Alessandra , over to you for Life Sciences .
Speaker #4: Thank you William . Good morning everyone . Please turn to slide nine for Life Sciences . Life sciences sales were 173 million in the fourth quarter , down 10% from last year .
Speaker #4: The decline was primarily driven by the divestiture of the nutraceuticals business and exit from low margin nutrition offerings . On a comparable basis , sales were generally stable , declining 2% year over year , reflecting a mix of volume and price .
Speaker #4: Turning to demand trends , pharma remained resilient across most regions , achieving low single digit sales growth year over year . This momentum was driven by innovation and demand for high value cellulosic excipients and sustained growth in our globalized business lines .
Speaker #4: Tablet coatings and injectables . In line with our long term strategy and growth objectives , nutrition and markets were softer , but recent business wins are expected to support a return to profitable growth in fiscal 2026 .
Speaker #4: On pricing year over year headwinds narrowed sequentially with pricing generally stable throughout the quarter . Foreign exchange provided us 3 million tailwinds to sales .
Speaker #4: We continue to advance pharmaceutical innovation , highlighted by the launch of sucrose , a high purity excipient for injectables and the expansion of our low nitrate excipients to help customers mitigate nitrosamine risk .
Speaker #4: This new offering reinforces Ashland Inc.'s commitment to delivering high-quality solutions for the evolving needs of the pharma industry. Now, let's look at profitability.
Speaker #4: Adjusted EBITDA was 55 million , representing a 32% margin and a 2% decline versus 56 million last year . The year over year decrease primarily reflects a 3 million impact from portfolio optimization actions , which shifted the segment's portfolio towards high return applications .
Speaker #4: Excluding this impact, adjusted EBITDA increased $2 million, driven by mix and reduced expenses, which more than offset lower pricing compared to last year.
Speaker #4: As mentioned , reaching an adjusted EBITDA margin above 30% for the full year is a first for life sciences . This is a milestone that highlights our strategic focus and disciplined execution , and the strength of our margin .
Speaker #4: Foundation . Please turn to slide ten for intermediates . Intermediates continue to face pricing and volume pressure in the fourth quarter , with merchant sales and NMP and BDO volumes broadly lower year over year .
Speaker #4: Lower production volumes also impacted profitability and competitive intensity from Chinese overcapacity and exports remain a key market factor , particularly in Europe . BDO pricing remains near a cyclical low .
Speaker #4: Sales were 33 million , down 8% from the same period last year . This included 23 million in merchant sales and 10 million in captive BDO sales .
Speaker #4: The year over year sales decline was primarily driven by lower overall pricing and merchant volumes . Intermediates generated 5 million in adjusted EBITDA , representing a 15.2 margin , down from 10 million and a 27.8 margin in the prior year .
Speaker #4: Margins compressed both sequentially and relative to the prior year , reflecting lower pricing and production . The team continues to manage the business with discipline and a focus on efficiency .
Speaker #4: As we navigate a challenging market environment . Now I will turn the call over to Jim to discuss personal care . Jim .
Speaker #2: Thank .
Speaker #3: You Alessandro . I'll now highlight our personal care results . Personal care sales . were 151 million .
Speaker #2: In the .
Speaker #3: Fourth quarter , down 7% year over .
Speaker #2: Year , primarily .
Speaker #3: Reflecting the divestiture of the Avoca business . on a comparable basis . Personal care . delivered 5% sales growth .
Speaker #2: With strong volume gains . outperforming a stable but muted market environment . The team executed well . and delivered broad based growth across all end markets and regions .
Speaker #2: .
Speaker #3: As expected , both globalized business lines delivered robust growth . This quarter and set to continue their performance as strategic investments , innovation and a renewed commercial approach continue to .
Speaker #2: Gain traction in Biofunctional .
Speaker #3: Actives .
Speaker #2: Sales were up .
Speaker #3: Double digits .
Speaker #2: Performance was driven from a stable base in multiple new customer launches . Utilizing our .
Speaker #3: Innovative actives Microbial . protection delivered its .
Speaker #2: Fourth consecutive . quarter of sequential growth and .
Speaker #3: Resumed . healthy year over .
Speaker #2: Year expansion . Europe delivered robust growth in all regions , converted major customer wins . In addition , our .
Speaker #3: Commercial excellence efforts in the care ingredients portfolio continue to deliver performance .
Speaker #2: In .
Speaker #3: Both hair .
Speaker #2: And skin . care across regions .
Speaker #3: Personal care and enhanced our innovation .
Speaker #2: Pipeline with two .
Speaker #3: New product .
Speaker #2: Introductions based on the .
Speaker #3: Transformed vegetable .
Speaker #2: Oil platform . Turning to profitability .
Speaker #3: , adjusted EBITDA was . $43 million .
Speaker #2: .
Speaker #3: Compared to $47 million .
Speaker #2: In the prior .
Speaker #3: Year , representing a margin of .
Speaker #2: 28.5% . The year .
Speaker #3: Over year decrease .
Speaker #2: Was primarily due .
Speaker #3: To portfolio .
Speaker #2: Optimization ,
Speaker #3: Which reduced EBITDA by $7 million . Excluding this impact , adjusted EBITDA increased $3 million .
Speaker #2: Driven by higher organic sales , partially offset by .
Speaker #3: Lower pricing . .
Speaker #2: In summary .
Speaker #3: Personal care delivered strong growth .
Speaker #2: Resilient profitability and visible traction .
Speaker #3: In our strategic .
Speaker #2: Priorities .
Speaker #3: Setting a solid foundation for continued improvement . in fiscal year 2026 . Now , I'll hand it over to Diego to review the results of specialty additives doggo .
Speaker #3: Thank you Jim . Please turn to slide 12 . Specialty additives sales were 131 million in Q4 , down 9% year over year , and consistent with Q3 , the exit of low margin construction business reduced sales by approximately 4 million , or 3% .
Speaker #3: Excluding these actions , segment sales declined 6% , reflecting continued weakness in China . Competitive intensity in export markets such as the Middle East , Africa , and India , and softer demand in North America .
Speaker #3: Most of the volume decline was due to last year's share loss in China , where overcapacity and weak demand continue to weigh on volumes and intensify competition .
Speaker #3: While Codeine's demand remains soft, most regions saw stable sales sequentially.
Speaker #4: Performance specialties .
Speaker #3: Constructions and energy outperformed the market , supported by share gain initiatives . Pricing remained stable year over year , and foreign exchange contributed a favorable 2 million impact to sales .
Speaker #3: Adjusted EBITDA was 29 million , consistent with the prior year and up 3 million sequentially . As favorable cost offset lower volumes .
Speaker #4: Resulting in .
Speaker #3: The strongest margin of the year at 22.1% . Portfolio optimization actions reduced EBITDA by 1 million , excluding this adjusted EBITDA increased 1 million , with improved cost efficiencies driving the years strongest margin performance .
Speaker #3: Following the production closure in Berlin , we rebalanced the network and prioritized high value applications to stabilize margins in a lower demand environment .
Speaker #3: Looking ahead , specialty Additives is well positioned to capitalize on a recovery driving outsized margin gains as demand improves . With that , I'll turn the call back over to William for some additional commentary .
Speaker #3: William , thanks , Otto . Please turn to slide 14 . As we close out fiscal 25 , I want to highlight the meaningful progress our teams have delivered .
Speaker #3: We completed our $30 million restructuring program , realizing 20 million in savings . This year with another 12 million expected in fiscal 26 .
Speaker #3: Our $60 million manufacturing optimization initiative is well underway , with 5 million in savings this year and 18 million projected next year . A major milestone was the full closure of heartland , consolidating our HCC operations .
Speaker #3: VP and Cost actions continue to progress , and we remain on track to achieve our fiscal 26 run rate target . We have also closed two smaller plants as a part of our consolidation efforts , and expect to complete the process in fiscal 26 .
Speaker #3: Productivity improvements continue across the VPN manufacturing chain as continued throughout the year . As communicated throughout the year . While strategic initiatives are largely on track , PNL realization is extending beyond initial expectations , reflecting current operating realities .
Speaker #3: First , cost improvements are flowing through more gradually due to weighted average inventory accounting and elevated inventory levels . Tied to consolidation and tariff mitigation .
Speaker #3: Our initial assumptions on timing proved ambitious , and we are adjusting accordingly . Second , higher costs at our consolidated site , partially tied to the accelerated HCC timeline , are impacting unit costs .
Speaker #3: We're actively addressing these pressures . Third , lower Asia volumes have reduced plant loading while we've shifted network volume to maintain utilization . This has lowered us production and additive savings overall manufacturing network optimization benefits are expected to range from 50 to 55 million under current conditions .
Speaker #3: We continue to target the full $60 million opportunity , which remains achievable as China volumes recover despite timing adjustments . The program is already supporting margins and remains a key lever for future improvement .
Speaker #3: These actions are strengthening our cost position and support margin expansion . We remain agile in responding to market shifts and our restructuring actions are already helping softness in selected markets .
Speaker #3: In addition , we are enhancing our financial systems and forecasting capabilities to improve accuracy , drive accountability , and strengthen performance and operations .
Speaker #3: Looking ahead , our priorities are clear . Finalize the cost savings program and continue to drive productivity and operational excellence through our streamlined footprint .
Speaker #3: With that , I'll now turn the call back over to Guillermo . Guillermo , please turn to slide 15 . As we wrap up , fiscal 2025 , I'm proud of the resilience and agility Ashland has demonstrated .
Speaker #3: Our teams exceeded our innovation targets and advanced our global agenda , which began delivering visible results in offset Q4 . We saw steady sequential momentum in our globalized platform throughout the year as investments took hold .
Speaker #3: While the base business was down on the year in personal care , globalized segments , Q4 marked a turning point , growing double digits in the quarter .
Speaker #3: We have clear goals to sustain and accelerate this momentum in fiscal 2026 . Regarding our innovate strategy , our teams outperformed our innovation targets driven by core technology advancements .
Speaker #3: I showcase at the recent Innovation Day , we continue to strengthen our new technology platforms that are central to Ashland's long term potential .
Speaker #3: The energy around our innovation pipeline is growing, and we're pleased with the attraction we've established. These achievements reinforce our confidence in the long-term value of our portfolio.
Speaker #3: Looking ahead , we can will continue to disclose targets transparently . We believe openness around the goals is essential as we pursue high quality growth .
Speaker #3: We are committed to sharing both successes and challenges openly . This approach is fundamental to building credibility and confidence in our strategy , ensuring you have clear view of our progress and the path forward for fiscal 2026 .
Speaker #3: We are targeting 20 million in incremental globalized sales and 15 million in innovation driven growth . As we scale platforms and advance recent launches , please turn to slide 16 .
Speaker #3: As we look ahead to fiscal 2026 , our focus remains on disciplined planning and consistent , delivered . This marks our second consecutive quarter of meeting EBITDA commitments and important step in building credibility .
Speaker #3: Going into the new year . Our guidance is in prudent assumptions and reflects a continued emphasis on execution , consistency and transparency . Importantly , our planning reflects a return to growth , signaling a constructive shift in trajectory and renewed momentum across our businesses .
Speaker #3: Going into the new year . Our guidance is grounded of 1,000,000,835 million to 1,000,000,905 million , representing organic growth of 1 to 5% .
Speaker #3: Portfolio resets are minimal , roughly 10 million due to owning a bouquet for Q1 of fiscal 2025 , making this year's result easier to baseline .
Speaker #3: Adjusted EBITDA is projected between 400 million and 430 million , with free cash flow conversion of 50% and CapEx near 100 million . This supports an attractive free cash flow yield and provides flexibility for capital deployment year , we expected adjusted EPs to grow double digits plus and meaningfully faster than EBITDA , driven by operating improvement and lower depreciation from portfolio optimization .
Speaker #3: Our assumptions reflect current market realities , life science and personal care remain resilient , supported by innovate and globalized momentum , specialty additives and intermediates .
Speaker #3: Specialty coatings continue to face pressure, while macro factors like interest rates and housing turnover could support recovery. We've tempered our upside in our outlook.
Speaker #3: We expect to outperform underlying markets through share gains , innovation and discipline execution , tariff related uncertainties persist . We're actively managing sourcing , production and logistics and pricing .
Speaker #3: Input costs next remain stable with steady raw materials and well-functioning supply chains. On the cost side, our manufacturing network optimization program continues to advance; most planned actions are complete, and we remain on track to deliver $50 million to $55 million in savings under current conditions.
Speaker #3: The full 60 million opportunity is still intact and achievable as China volumes recover . As William noted , timing shifts will reduce the impact in fiscal 2026 , but the contribution remains meaningful .
Speaker #3: Key factors included in our 2026 guidance are approximately $30 million of restructuring and network optimization from our $90 million program, and about $20 million related to resetting performance-based compensation and merit increases.
Speaker #3: Approximately 10 million impact driven by repairs and network wide operational and working capital efficiency measures . Measures following the Calvert City outage , we're also increasing our R&D investment by $4 million to accelerate innovation in some of the leading disruptive opportunities .
Speaker #3: Overall , our fiscal 2026 guidance reflects a prudent view of market conditions . We remain focused on advancing innovation , scaling globalized platforms , and driving cost and productivity initiatives to support high quality growth , even in muted markets with consistent execution mix improvement and disciplined capital allocation .
Speaker #3: Ashland is well positioned to deliver resilient performance and long term value creation . Please turn to slide 17 . In closing , I want to highlight a few key priorities as we look ahead .
Speaker #3: Fiscal year 2025 ended on a healthy note, with our teams delivering on operational and strategic goals. Despite the challenging macro environment, the completion of portfolio optimization and network consolidation has made Ashland a more focused, resilient business well-positioned for growth in high-value markets.
Speaker #3: We enter 2026 with momentum cost actions are yielding early margin gains with full personnel impact expected to follow in . Innovation remains a growth catalyst .
Speaker #3: We're focused on accelerating commercial success . Recent investments are driving renewed progress in our globalized platforms , reinforcing our confidence in long in the long term opportunities .
Speaker #3: Our priorities for fiscal 2026 are clear . Delivering on safety , profitable growth , free cash flow and asset returns , advancing network optimization and inventory performance , accelerating innovation scale , globalized platforms and foster a productivity culture .
Speaker #3: Strengthening systems such as SAP costing planning and leveraging AI . Prioritizing talent and organizational stability and engaging our investors to transparent and consistent execution .
Speaker #3: Fiscal 2026 will be about converting transformation into sustained performance , with a focused platform and resilient core , Assam is positioned to deliver greater value across stakeholders .
Speaker #3: Our core businesses have demonstrated stability through challenging periods , and we've strengthened our margins and improved our asset returns . The foundations we built give us confidence as we pursue our strategic priorities .
Speaker #3: Thank you to the entire Ashland team for your resilience and teamwork . We're focused on translating opportunity into performance . Operator . Let's open the line for Q&A .
Speaker #1: Thank you . At this time , we will conduct the question and answer session . To ask a question , you will need to press star one .
Speaker #1: One on your telephone and wait for your name to be announced . To withdraw your question , please press star one . One again .
Speaker #1: Please stand by while we compile the Q&A roster . Our first question comes from the line of David Begleiter from Deutsche Bank . David , your line is now open .
Speaker #5: Thank you . Good morning again . Just on volumes . What were volumes in Q4 and what are your volume assumptions at the high and low end of the EBITDA guidance range for next year ?
Speaker #5: Thank you .
Speaker #3: Hey . Good morning , David , and thanks for the question . So on the volume side , we had pretty nice pickup in volume .
Speaker #3: If you look at our our life science and and the personal care , those were the biggest drivers . If you look at say the coding side specifically , you probably you know , it was a mixed by region .
Speaker #3: You know , the coatings business . We have to look at it region by region . Some were up , some were flat and some some were down .
Speaker #3: China obviously being the most the most down year on year . And intermediates did not recover . It stabilized . I think pricing has been the biggest challenge there .
Speaker #3: You know , some some volume . But but pricing has been a bigger issue as we look forward , what's going to be on the lower end or the higher end on the higher end , I mean , half half the growth in our target .
Speaker #3: If you look at our midpoint , is globalized and innovate gets you around 2% . So we're only looking at about 1% at the midpoint of of market growth or share gains within within the market .
Speaker #3: So on the low end is that the market gets muted and , you know , the competitive intensity increases that we would , you know , cannibalize our growth in globalize and innovate .
Speaker #3: And on the upside that we get more robust recovery in some of the markets .
Speaker #5: And just on a cadence of next year or this year, should Q1 EBITDA be up versus Q1 last year? Thank you.
Speaker #3: Yeah , David . It's William , good morning . So a couple of the moving pieces as you compare to last year in fiscal 25 , we pulled forward a lot of maintenance activity .
Speaker #3: If you recall . So that was a $25 million headwind last year . Q1 is typically where we'll do a lot of our annual compliance shutdowns .
Speaker #3: So we have about half of that this year , about $12 million . But then we've also shared that Calvert City outage . So that's a $10 million impact in Q1 .
Speaker #3: So as you look at the puts and takes on the manufacturing side , I would expect sales volume to be in line with how we've talked about the guide in .
Speaker #6: Terms of year over year . Life sciences should have a nice comp in terms of the sales volume in Q1 , as compared to last year , and then pricing trends have been stable .
Speaker #6: And so year over year pricing should be a more modest headwind . So if you put that all together , we're roughly flat , flattish versus the prior year .
Speaker #6: But I would say that the key element of that is the Calvert City action that we've shared late last month .
Speaker #5: Thank you . Perfect .
Speaker #1: Thank you . Our next question comes from the line of John McNulty from BMO . John , your line is now open .
Speaker #3: Yeah . Good morning and thanks for taking my question . So in life sciences , you spoke to some weakness in the nutrition side .
Speaker #3: And then also spoke to some wins that will help to offset that , I guess . Can you flush out both of those a little bit more ?
Speaker #3: Where was the weakness on the nutrition side ? What were some of the some of the business or parts of the business that were a little bit softer ?
Speaker #3: And then and then also speak to what drove what drove the wins ? Where should we be thinking about that in terms of some of the traction that you're getting there ?
Speaker #3: So good morning , John . Let me ask Lasandra to answer this question directly . Yeah .
Speaker #4: So the the weakness it was , it was mostly North America and Europe . In Europe with a customer of ours then losing , losing market share .
Speaker #4: But as , as Guillermo mentioned and and also commented on on the prepared remarks , we we are we have we are gaining some traction with with share , share gains and and this is it's mostly on on the klucel and we will see that reflected in , in our in our results in the coming in the coming quarters .
Speaker #4: But you know , we , we expect to see the recovery showing in in the first quarter already . .
Speaker #3: Got it . Okay , John . Share gain . We got already it already started this you know it's already we've already gotten orders and it's already impacted .
Speaker #3: So it's not to come . It's already gained okay . Got it . No that's that's helpful . And then and then just a question on the cash flow side .
Speaker #3: You've got CapEx set for $100 million. Now, I guess how much of that is growth CapEx? And you had the big Innovation Day where you highlighted a bunch of pillars, where some of them are going to need some capital and some aren't.
Speaker #3: I guess how much how much should we be thinking about in terms of growth CapEx tied to some of those innovation pillars that look like they're pretty close to turning the corner and starting to commercialize .
Speaker #3: So so let me just quick comment and William , you can give a little bit more detail . But you know , the the big drivers are going to be things around globalize that we're still investing in India .
Speaker #3: In , in and even just finishing some some of the projects and Europe , US and I would say also as we look at the , the , the projects that we've that we've done getting out of Parlin , there are investments we're pacing them because of just the demand is a little bit softer , but there are some capital projects that we we're going to be adding to increase capacity in the US , given it's a little bit more muted , we're going to be managing through that at a slower pace .
Speaker #3: But, but those are part of the plan. But if you want to give a little bit more detail.
Speaker #6: Yeah John it's a good question . It fits really into the strategy of what we're doing on the asset side . So so first from a CapEx perspective , maintenance CapEx is coming down .
Speaker #6: So as we've rightsized the footprint , stay in business capital is probably down 1515 million . So 55 million would be stay in business .
Speaker #6: Of that hundred from there there's some things that we like to do from a cost savings perspective that that , you know , debottlenecking the plant .
Speaker #6: So, that's probably another 15. And then, on top of that, to get to the hundred is the growth projects and Tiger Point.
Speaker #6: That's supporting the globalize initiatives . So specifically microbial protection as well as the OSD tablet coatings business gets us to the 100 . And then going forward because your question on the new technology platforms , that's something that we've contemplated in the plan .
Speaker #6: I think a key element of that for us is, right, as we rightsize the footprint, what can we be doing to repurpose the assets in the future in terms of optionality?
Speaker #6: And so we're not at any point now where we're making a meaningful what I'd say , a meaningful bridging item , because we're able to efficiently access that capacity with the internal assets that we've rightsized .
Speaker #3: Got it . Okay . Thanks very much for the color .
Speaker #1: Thank you . As a reminder to ask a question , you will need to press star one one on your telephone and wait for your name to be announced .
Speaker #1: Please limit to one question and one follow up . Our next question comes from Chris Parkinson from Wolfe Research . Chris , your line is now open .
Speaker #7: Great. Thank you so much. Just when we're taking a step back and looking at the personal care markets, the results are pretty good for skin and hair.
Speaker #7: However , some of your customers are speaking , you know , positively about high end customers , negatively about lower end customers . In some cases , there are signs of life , you know , in Asia , for the first time in several years , but it just seems like the overall outlook is still pretty mixed .
Speaker #7: Is that what you're hearing and how are you thinking about that in the near term ? Versus how are you thinking about the growth algo relative to market for your portfolio over the intermediate to long term ?
Speaker #7: Thank you so much , Grace .
Speaker #3: I'm ask Jim to to comment on that in more detail . But you know , there is a lot of difference depending on where what segments you're on .
Speaker #3: And and the regions . So there is a lot of variation . And you can see that in some of the , the , the earnings calls of other players .
Speaker #3: Some are up in North America, while others are down in Europe. So there's a lot of variation going on, and it really depends on your business profile.
Speaker #3: What customers , what segments you're in . So so for us , Jim , if you want to comment on how it affects us .
Speaker #3: Sure . Thanks , Carol . Hey , Chris . So so maybe starting with the last part of your question in terms of , you know , near term and then medium to long term .
Speaker #3: As we look at our business and what we've shared around our activities in globalize and innovate, we feel we have a lot of levers in the portfolio.
Speaker #3: We have a very broad product portfolio across different segments where we can outperform the market. That's our medium to long-term view, specifically in terms of what we're seeing in the market right now.
Speaker #3: I think you captured it well . It is a mixed environment where your position with customers can really play into the performance that you're seeing .
Speaker #3: And if we do , maybe a quick walk around around the world , North America is is a bit of a of a mixed environment .
Speaker #3: In Q4 , we saw stable performance versus versus prior year . There with skin and hair continuing to hold up quite well in Europe .
Speaker #3: We've seen a continued acceleration in Europe throughout the year , and that continued in Q4 , especially in skin and in sun . If you look at sell in versus sell out , that channel has really improved and the Sun market as inventories have , have come down and we've seen nice growth in our film formers within Suncare , within Asia and in China specifically , we've continued to focus on local regionals .
Speaker #3: As you mentioned , we are seeing stabilization in some growth in the prestige segment as well . And so there are Biofunctional actives , business performed really well in our other segments within skin and hair in Latin America .
Speaker #3: I would say Brazil is a bit of a mixed environment right now . Skin was quite strong and hair is a bit mixed .
Speaker #3: And Mexico and Argentina were both strong in personal care and in home care . When you look at our business specifically , you know , what I'd say is and we've talked about this throughout the year , our two globalized business lines , Biofunctional actives and Microbial protection .
Speaker #3: We've done a tremendous amount of work . The team has done a great job , really driving the commercial activities there . And we have been very successful having new customer launches with our Biofunctional actives and share gains in our microbial protection , specifically in Biofunctional actives .
Speaker #3: As we've shared that that part of the business has been impacted by some customer specific headwinds , we've lacked that . As we said in the last call , that has stabilized , and we do expect some incremental growth there .
Speaker #3: And now you're starting to see the new customer wins really come through externally , where it was masked in the past . And similarly , microbial protection , the base has stabilized and the new wins that we've converted throughout the year .
Speaker #3: Coming through in our results . And we expect that to continue as we go into fiscal 26 .
Speaker #7: Just a quick follow up . Pretty similar question for for life sciences . You mentioned in your remarks , I mean , low single digit growth .
Speaker #7: And it seems like , you know , a two part question . One , can we confirm that we finally lapped a lot of the other headwinds that we are , you know , looking at with a European competitor ?
Speaker #7: And two , you do mention that growth came from both Cellulosics as well as injectables . Is that just off of a very , very slow base , or is there a new product that's contributing to that ?
Speaker #7: And just how to think about the bifurcation of the growth of Cellulosics versus injectables over the intermediate to long term would be very helpful .
Speaker #7: Thank you .
Speaker #3: So , Chris , the Cellulosics have always been strong . So it you know , the the there's variations that there's probably more around , you know , customer orders and inventory , but not I mean those businesses have been performing .
Speaker #3: Our issue was more on the BP side and that that has stabilized . But Alessandro , you want to give a little bit more color .
Speaker #3: Yeah .
Speaker #4: And both let me just cellulosics and and tablet coatings and injectables . This is pretty much aligned with our strategy . Focus on and positioning the globalize and innovate .
Speaker #4: So that's our growth strategy . If we look at it injectables start starting with injectables . So we are consistently having consistently performing above market growth .
Speaker #4: We we launched last quarter . We talked about the medical Resorbable polymers for medical devices that were launched . Now just last month we launched for injectables violence , sucrose to expand our offering on with high purity stabilizers for critical biological , biologic applications .
Speaker #4: So basically injectables as part of our global lives has been outperforming market . And we have been growing nicely , not only showing the results from a revenue standpoint , but also very important in our pipeline , our sales pipeline , in terms of dollars and in terms of customer programs , has been has been increased , increased over 30% in the last year compared to to to the year before .
Speaker #4: Then on tablet coatings , we are seeing the momentum and also operational gains with our manufacturing facility . So we we announced we are making we made the investment in Brazil .
Speaker #4: We started that new facility in April . We have a facility in China . We have the facility in the US . We are building a new facility in India .
Speaker #4: And so we're seeing the momentum with double digit year over year growth , specifically in Q4 . That was for both injectables and film coatings , within globalize .
Speaker #4: It was a very strong . And also the pipeline growing nicely for for film coatings . And as you mentioned , I mean , Cellulosics is part of our innovate .
Speaker #4: It's part of our innovation metrics . And and we we have been growing nicely with that as well . So overall life science , we exceeded our targets from an innovation standpoint .
Speaker #4: And it's really was really driven by adoption of high purity solutions across not only OSD with Cellulosics , but also on on injectables .
Speaker #3: Can you comment on the VPN stability ?
Speaker #4: Yeah . So VPN , we are us . The . Question compared you know the with the competitor that you know years ago there was some disruption in the market .
Speaker #4: Yes we have seen that stabilized . So it is currently both from a from a volume and price point . It is currently stable .
Speaker #4: We are entering the contract season in in Europe . So there could be some pluses and minuses . Some movement . But but it's currently stable .
Speaker #7: Thank you so much .
Speaker #1: Thank you . Our next question comes from the line of Steven Haynes from Morgan Stanley . Steven , your line is now open .
Speaker #3: Hey good . morning and thanks for taking my question . I wanted to , I guess .
Speaker #6: Follow up on .
Speaker #3: The life sciences . pricing piece . Are you able to .
Speaker #8: I guess just provide a bit of color around what percent of your , I guess , book or however you want to frame it is coming up for renegotiation each year in terms of the price contracting .
Speaker #8: Thank you .
Speaker #3: We don't we don't talk about the exact because it makes . It by customers . But I would say most of it , the bigger thing is Europe , Europe is where some of the bigger players , they tend to do it at the same time .
Speaker #3: So it would cover everything . VPN cellulosics so it's it's the entire portfolio . You do contract with all all the products there .
Speaker #3: And obviously from a sales perspective , the Cellulosics and VPN are the the biggest , biggest part of the mix . Tablet coatings and and injectables would be the newer stuff with very different technology .
Speaker #8: Okay . Thank you . And then maybe as a follow up , the 4 million of the incremental R&D spend that you flagged in the guide was that R&D spend kind of originally in your plan ?
Speaker #8: Is it is it being pulled forward and are you able to kind of provide a bit of color on where that incremental spend is going in terms of the kind of several platforms that you highlighted at Investor Day ?
Speaker #3: Yeah , you know , as we highlighted yesterday , the two things as we launch these and work with customers and developing the two questions is investment for for manufacturing the CapEx .
Speaker #3: And fortunately we have we have , you know , capital that we've we've idled that we can repurpose . And that's the focus .
Speaker #3: But the other part just the recognition that , hey , as these things really start moving , we probably will need to add resources to really develop the products .
Speaker #3: Depending on what the customer wants or the applications . Right now , most of that is on the new technology platforms . The TVO , the Transformer vegetable oil is is the one that has the broadest legs .
Speaker #3: If you if you look at it , it's going into almost every business and life science . And in tablet coatings and ag , you know , it's it's hitting a lot of areas .
Speaker #3: The in many , many applications in personal care and encoding . So we're adding both resources . We're trying to add resources so that we can scale this capacity .
Speaker #3: So not every business needs to double . You know the work . So right now part of it is going to be in the coatings area .
Speaker #3: We have some really exciting technology developments with with TiO2 efficiency and with Allkids and a few other areas . So on the polymerization side , we're we're adding some some of the capabilities that will help all the businesses .
Speaker #3: But we're centering it there because that team is a little bit more focused . And we have more capabilities there . And then another part of it we're doing on our central R&D , again , to support .
Speaker #3: There's more more requests for from customers for modifications . You know , the core technology we're getting validation . The issue now is converting them into specific products that our customers want .
Speaker #3: And that will take a much greater engagement with customers . So that's what we're going to , but we're going to pace ourselves .
Speaker #3: As we said , we're not going to just throw R&D . We want to see where things are , are , are advancing , and then and then we will drive the investments , I think on the other areas like super letters and and pH neutralizer and all that , we are , you know , we've added resources , but it's really been more shifting within the businesses of , you know , people that they had on other projects .
Speaker #3: You know , supporting them as they go . So we'll be we'll be providing more color on , on the innovation side .
Speaker #8: Great . Thank you .
Speaker #1: Thank you . Our next call comes from the line of Jeff Zekauskas from J.P. Morgan . Jeff , your line is now open .
Speaker #9: Thanks very much . I think you expected a hundred million from your innovation pipeline in 2027 . What do you expect from it in 2026 ?
Speaker #3: Or the the 26 ? What we what we what we've outlined right now is it was 15 million of new innovation and mostly still core .
Speaker #3: You know , the launches , as we said in the innovation day for the newer technologies , would probably be starting more in the 27 and beyond range , just based on the developments with with customers .
Speaker #3: .
Speaker #6: And Jeff , it's a it's a cumulative target in terms of incremental sales . So we did 13 this year plus the 15 .
Speaker #6: So roughly 30 in terms of since the the strategy day in terms of the cumulative commitment at this point through 26 . Great .
Speaker #3: And to be just to be clear , also , Jeff is just to we've kept it very simple on the globalized side . So the globalized we just put everything in there .
Speaker #3: So it does like injectables . There is a lot of innovation there . We just wanted to make it very clear story , because we're investing differently in the globalized .
Speaker #3: There's assets . There's other things that we need to do other very unique for all the so that sort of you get the full , you know , the net picture .
Speaker #3: areas . So ,
Speaker #3: This is how that's doing . Tablet coatings and and biofunctional and and microbial detection all have a lot of R&D and technology going .
Speaker #3: So right now that when we're calling innovation it's core . And then the new technology platforms that don't fall in those four segments .
Speaker #9: Okay
Speaker #9: . On your on your cash flows , I think you said that you expected 50% conversion in 2026 . Does that include the 100 million that you received as tax refund .
Speaker #9: And as far as your inventories go , you know , they've sort of moved up from about , I don't know , 530 at the beginning of the year to 570 or so at the end of the year , even though your sales are down , I don't know , 15% .
Speaker #9: So do you have to cut your production to to get your inventories to a more reasonable level ?
Speaker #3: Okay . Do you want to answer on the on .
Speaker #6: Yeah . So , Jeff , in terms of the 50% that does not include the 103 million tax tax return . So just to give you a sense of the bridge .
Speaker #6: Right . So it's it's the EBITDA midpoint . There's not a lot of movement on cash taxes and cash interest working capital for the full year .
Speaker #6: There's certainly an opportunity . Right now in Q1 . There's going to be an impact to 16 to $18 million release because of the Calvert City outage .
Speaker #6: But then also on HCC , right . We close Parlin in in advance of that . We built we built inventory to facilitate that that transition .
Speaker #6: And so we do think inventory is an opportunity we've traditionally been at two and a half turns over the last couple of years .
Speaker #6: But in terms of hitting the 50% commitment , it roughly equates to maintaining working capital at a at a consistent level . So as sales grow , we'll have an investment accounts receivable , of course , but then there'll be some offset on some of the actions that we're taking on inventory .
Speaker #3: And Jeff , on the on the inventory side , the two big areas that that went up a little bit is one with the closure of Parlin , we had we have them and it was part of our plan .
Speaker #3: We had to build inventory because we need to transition as we start up . We got to qualify the new the new plant .
Speaker #3: So we built enough inventory . So it will be coming down . It's not about shutdowns now . The HCC network just to be very clear on the total , because that's probably on the the network optimization , the pushback on on dollars to to next year .
Speaker #3: It's really around the HCC network and it's several things that , that , that are happening . One , you know , our flow through average accounting I mean our calculations probably were a little bit too aggressive on some of that .
Speaker #3: That's part of it . I think the inventory build impacts that . So it delays a little bit . But more importantly , I think it's going to be one the benefits are there .
Speaker #3: The plants closed . Right . So we got we have the benefit . Part of it is is probably two thirds will come through flow through this year and next year as we move forward .
Speaker #3: The one third will come . I think later . It's not that it's gone . That's the part that with with the lower demand in China , we have rebalanced our network .
Speaker #3: The network now is pretty full in a down market . So we're much more stable in how we run . But we shifted volumes that we were planning to make in the US to China and China .
Speaker #3: Now is our in China is exporting now to other parts of the world . So we've rebalanced the network . My from my view the what I'm looking at is about a third of the of .
Speaker #3: Their their goal and AGC is probably going to be delayed until China recovers . And we can take that volume back into the plants that we had planned originally .
Speaker #3: You know , China is bottoming . It's still soft . It's still hyper competitive . But we are starting to see opportunities to gain share , to move some volume up .
Speaker #3: But it's going to take it's going to be a journey up there . Great .
Speaker #9: Thank you very much .
Speaker #3: Thank .
Speaker #1: Thank you. Our next question comes from the line of Laurence Alexander from Jefferies. Laurence, your line is now open.
Speaker #10: Good morning . Two things . One , with the comments about competitive intensity , particularly from Chinese competitors . Are you seeing that focused on the same consistent areas , or is it or is it broadening out to more parts of your portfolio ?
Speaker #10: And secondly , on the innovation pipeline , can you give a little bit of a sense of the horse race in terms of which product , which platforms your customers are saying are most important , even if they're on a slower burn ?
Speaker #3: Yeah , so so on , on the first question , the China competition , it's really the same same areas for us . I mean , I know that this is a broad theme for many companies .
Speaker #3: For us , it's really mostly been VPN and and HCC . They're different . I think for us , one is our global competitors actually are our supplying from China .
Speaker #3: They have multiple plants . And so when we say China , it's not just Chinese players . It's China , it's China sourcing .
Speaker #3: We're the we're of the of the big volume of the market . We're the last not non-china producer really of size . And in a lot of these areas .
Speaker #3: So , so that's that's what we're seeing in HCC . I think it is a combination of overcapacity in China , but also the down market that , you know , the the exports have been pretty aggressive .
Speaker #3: Most of it we're seeing in the Middle East, Africa, and India is where we've seen most of it. So the pressure for us, and where we're going to be exporting from, is that we'll keep supporting China, but also play in the Middle East.
Speaker #3: Africa and India . Type , type segments . If you look at the innovation side , the interest is everywhere . I think , you know , the issue of the technology of the the the transport vegetable oil has the the greatest functional flexibility .
Speaker #3: So we're going to really a number of very different directions . If you look at what , what life science or pharma or AG is looking at versus what personal care and coatings are looking at , as we , each of them advances their technology , what they're doing in terms of functionality , we can apply it into other markets .
Speaker #3: And that's very helpful . I think that's going to be the one that we're really most focused on . On how do we drive scale , and that means we've got to focus on a few of the bigger opportunities to create scale , because longer term , this is something that , you know , like I've said in , in , in , in the innovation day , this is more a technology akin to acrylics or whatever , something that can be much broader .
Speaker #3: And so that's the one that attracts a lot of interest . I think the additive side of things in , in terms of the super wetters , those are more additives .
Speaker #3: I've been personally very surprised on how many new applications the teams they've modified it . We're going into AG , we launched just now in Brazil into into as we presented into the bioprocessing personal care , with some really exciting opportunities in both skin and hair and in coatings .
Speaker #3: These could be really scalable opportunities of size . So those those are our areas that I think we're we're very excited about . The starch is another one that's very good , mostly for personal care .
Speaker #3: But I think it will have a home later on as we look into into the life science space .
Speaker #10: Thank you .
Speaker #3: Thank you .
Speaker #1: Thank you . Our next question comes from the line of John Roberts from Mizuho . John , your line is now open .
Speaker #11: Thank you . Maybe help us separate seasonality in the specialty additives business from trend line here that the 6% decline that you just reported for the September quarter .
Speaker #11: And that's essentially all volume . If things have stabilized kind of to normal levels , we would be down 6% in the I know you don't want to give guidance for the December quarter , specifically , but is that an easy comp that minus six that normalizes or are we still trending down below trend line ?
Speaker #3: So so the let me make some comments and then I'll ask Daigo to comment . You know , the answer is going to be it's going to vary by region .
Speaker #3: As I said . So clearly the the North America you know , is where we've seen it's not that the market is coming down , but it's the expectations have have have come down from our customers both in DIY and and contractors .
Speaker #3: I think China is different . It's down and it's not it's not picking up those . I would say are the two big ones .
Speaker #3: But why don't you give some color . Yeah I mean that's that's a very good question . So what I will say , I mean , if I look at where we are in China , we don't see a recovery .
Speaker #3: Quite frankly , I wouldn't say in the next 1 or 2 years , the reason for that is that China needs to go through structural issues that they need to fix on the property sector , and we continue to see actually deceleration on the investment in the property sector , which very much drives the market in China .
Speaker #3: So we will continue to see some . I think it's stabilizing more at the bottom , but we will continue to see some softness .
Speaker #3: I would say , into 2026 . And then when you think about North America , I mean , the key drivers in the markets , I would say these two is the sales of homes .
Speaker #3: And those can be existing homes or it can be new construction and let's call it repaint , remodel , kind of market . Right .
Speaker #3: And when you look at sales of existing homes or sales of homes that are driven by interest rates, and that's driven by housing prices, interest rates are still relatively high.
Speaker #3: And housing prices are also relatively high . So I don't think that it's going to be that there is a that's why there is some conservatism in the market about those two .
Speaker #3: But then when you look at the repaint and remodel , the , the , the do yourself market , that one continues to be pretty flat and the price is slightly better , but not really picking up momentum a whole lot .
Speaker #3: If you look at our customers , if you look at what the market is saying , I mean they tend to kind of follow this view that maybe the first half of 2026 , calendar year 2026 is going to be soft because of these conditions .
Speaker #3: Now , having said that , I've been surprised in the past the market can recover , can be up if the construction market picks up , and we'll have to be ready for that .
Speaker #3: But for now , what we're seeing is Europe is pretty stable . North America is stable . China , we know the story and then we'll see some competitive pressure in Middle East , Africa , India and rest of Asia .
Speaker #3: That will be managing kind of throughout the last year . And I think John , the upside , you know , that everybody has to not kill .
Speaker #3: The hope is North America that you know that if there is a pent up demand for homes , construction , all that kind of stuff , but it's it's a macro that we don't control .
Speaker #3: So we're going to follow what our customers are saying at this point in time.
Speaker #11: Great . Thank you .
Speaker #1: Thank you . Our next question comes from Josh Spector from UBS . Josh , your line is now open .
Speaker #8: Yeah .
Speaker #12: Hi . Good morning . First I wanted to just ask on the pricing side . I mean , you kind of hit it on the life sciences side earlier , saying that you're seeing stabilization there .
Speaker #12: But on the specialty side , I mean , year over year , you said pricing was flat , but I think you alluded to potentially increased pressure .
Speaker #12: Do you think about that more on the volume side of things , or do you still see some downside risk on pricing as you're looking into fiscal 26 ?
Speaker #3: Let me just one comment and my personal view is pricing . And where to see the pressure is China and exports is so low now .
Speaker #3: Nobody's making money . There is a bottom at the end of the day you can't go down . You know it's not worth it .
Speaker #3: After a while . So I do think it's there's there is some stability . The issue is going to be more , you know , export markets .
Speaker #3: And this is the whole issue I think in , in , you know , the impact in , in exports to , to Europe and all that , that we're seeing in different product , not just SA but in other areas .
Speaker #3: But you want to comment a little bit more the way I would look at this is in general the United States , it's going to be a North America is going to be a pretty stable market from the pricing standpoint .
Speaker #3: And I will say it is the same case for Europe . So those are our two largest markets . And there we see the typical normal kind of performance in terms of volume and pricing equation .
Speaker #3: But I would say relatively stable versus what we saw in fiscal year 2025 . And again , that's by large , our two key markets .
Speaker #3: Then when it comes to the rest of the world , we're just being very careful . And we always do the volume price balance to determine where it makes sense for us to hold prices .
Speaker #3: And we do that on a regular basis . That's why you didn't see our pricing come down in , in in the last quarter .
Speaker #3: Or if we want to selectively go after certain share gains , right . If we want to balance the network better . So I would say we will continue to see some pressure in in 2026 again , especially areas like Middle East , Africa , India .
Speaker #3: But I would say it's pretty similar to what we were seeing so far . And the good news continues to be that customers value pretty much what we bring to the table .
Speaker #3: The value , quality , the value innovation , the value , our overall value proposition . So we believe that , you know , with the right mix and we'll be able to to hold on to what we have .
Speaker #12: Thanks . Just quickly , Guillermo or William , I mean , what are your thoughts around capital allocation here ? Do you need to get leverage down before you think about resuming buybacks , or is that something you think about doing more near term ?
Speaker #3: So , you know , I'll let William give the the more detail . But we have flexibility right now . I think , as William said in his , in his comments , we can do both think we will be pragmatic as we've been in the past .
Speaker #3: . I
Speaker #3: I mean , there is a value side right now and where the share price is , but we also , you know , in this uncertain environment , we want to make sure that we're we're balancing that out with how we manage our , our debt .
Speaker #3: But do you want to comment a little bit more? Yeah.
Speaker #6: Thanks , Josh . So the capital allocation priorities are
Speaker #6: unchanged . First we're going to fund the high quality organic growth investments . That's in the $100 million CapEx . And the productivity agenda as well .
Speaker #6: That's a key area for us to improve the cost structure at the plants. The other piece is leverage, which is important. We want to keep that within our target range and preserve balance sheet flexibility.
Speaker #6: Thereafter , we return the excess capital , excess cash to shareholders . We have a stated dividend policy at 30% payout . We're a bit above that .
Speaker #6: I would expect dividend increases to be more moderate from here. But post-dividend, we'd look to be balanced in our capital deployment, like we've done in the past with episodic share repurchase activity.
Speaker #6: I think one thing that you can gather from the outlook is we do expect to generate good, good free cash flow in the year ahead.
Speaker #6: So, as you roll forward the tax return that we just talked about, plus the free cash flow, will be down in the low twos.
Speaker #6: If you roll that forward and deliver the midpoint of EBITDA guide . So plenty of flexibility and we'll continue to be balanced and disciplined on how we approach it in the year ahead .
Speaker #12: Okay . Thank you .
Speaker #13: Thank you .
Speaker #1: Thank you . Our next question comes from the line of Abigail Everts from Wells Fargo . Abigail , your line is now open .
Speaker #14: Hi there . Thanks for taking my question . I just wanted to confirm timing on portfolio optimization headwinds . When should we expect to see those fully lapse ?
Speaker #6: I can take it . I can take it . Yeah . So , Abigail , I think that's the good news is going into next year , it's there's a little bit of an impact in personal care in Q1 .
Speaker #6: It's about $10 million in sales , $1 million in EBITDA . And then that's it . And so for the first time in quite some time , it's a very clean baseline .
Speaker #6: And our reporting should be, if we grow 2%, we grow 2%. And there's not necessarily this adjustment on things that we've rationalized or sold in the past.
Speaker #6: It's a very clean setup going into next year.
Speaker #14: Okay , great . That's that's good news . Also , just another timing question . You expect a recovery nutrition middle FY 26 maybe later maybe earlier .
Speaker #14: What's the timing on that .
Speaker #4: Nutrition and mentioned it's already happening as we speak in the month of October . So we those wins specifically with Klucel . It has happened .
Speaker #4: We started to receive orders towards the end of fiscal year Q4 and and have already been delivering products in in October . Now in .
Speaker #4: So it's it's real . It's it's happening already and and we we expect to to see nutrition coming to closing the gap that we saw in Q4 .
Speaker #4: As I mentioned , it was a share gain of our customer in Europe . And of course , as a consequence , we ended up losing share as well .
Speaker #4: But it's colossal, coming with new wins, and it's a profitable win.
Speaker #3: And I would highlight that the mix that what we lost is more lower margin material . What we're gaining is better quality material in terms of the margin profile .
Speaker #3: So net, net will be positive.
Speaker #14: Okay . Got it . Thank you .
Speaker #1: Thank you . Our final question comes from Mike Harrison from Seaport Research Partners . Mike , your line is now open .
Speaker #15: Hi . Good morning . Just wanted to follow up a little more on the network optimization . My question is more on the timeline of the benefits that you kind of pushed out here .
Speaker #15: But I'm just curious what needs to happen in order to realize some of those benefits more quickly. Is it as simple as better demand?
Speaker #15: Do you need better demand in specific regions or product lines , or are there any other actions ? I know you mentioned ? It sounds like maybe some incremental actions other other actions you can take to maybe help accelerate some of those benefits .
Speaker #3: Yeah . So so if you look at the the actions , Mike , the small plant , it's you know , it's a smaller number .
Speaker #3: Most of them are done . You know , within the first half of , of this year those will be done . And they'll just flow through AGC as we discussed is is the one that's creating more of the flow through timing issue .
Speaker #3: And that one is those three stages of , hey , you know , the the , the , the action is done . The assumption on the flow through from an average accounting was probably too optimistic , more delayed .
Speaker #3: But the inventory and the revenue . So sales will be the big issue in the big catalyst . If sales pick up , we can move a lot more of the material so that flow through just accelerates the part that I you know , we do want to be transparent is part of it .
Speaker #3: About a third of the AGC volume I'm glad we did it , but it's holding up our position in China . You know , it's now instead of being incremental , the we would have had a deterioration of our business in China .
Speaker #3: And and this action has helped it already . Right . So we're getting a benefit . It's just not incremental for it to become incremental .
Speaker #3: That's what we say that China China has to pick up or somebody else needs to pick up to offset that . So that can we can rebalance the the network .
Speaker #3: So that's the one that has the most timing issues because it's done . I think the the VPN , you know , we're working across we've we've had several two plants .
Speaker #3: We worked on . One we're going to start working on . The other one , a lot of actions and timing . So that one the conclusion of the events will dictate the timing of those things .
Speaker #15: Right . And then the other question I had was for doggo was hoping you could give an update on some of the efforts to expand your applications or opportunities in industrial coatings .
Speaker #15: I think most of your commentary addressed the architectural side , and I was just wondering , you know , are there some new business wins or applications that you're pursuing ?
Speaker #15: Thank you .
Speaker #3: Yeah , absolutely . And a very good question and very much at the heart of what we're doing at the heart of this strategy , which is innovation , we're doing a couple of things .
Speaker #3: First , we're looking at quick wins and what we mean by quick wins is that we already have a pretty robust portfolio where what we really needed was application data that can be used into industrial applications .
Speaker #3: So we're doing a lot of that . And with with the portfolio that we have , we want to go after those industrial customers .
Speaker #3: We know who they are . We know how to get there . And we have an existing portfolio so that for us is really a quick win .
Speaker #3: An area that we're looking into a little bit more to , to accelerate the monetization of our innovation efforts . And then longer term , it's it's twofold .
Speaker #3: It's also the core business . It's also the core portfolio . But then we have areas like Easyjet for instance , easy where we just launched another product , a couple of weeks ago .
Speaker #3: And it's ready to go . And we are already seeing pretty good traction from our customers . It's one customer at a time .
Speaker #3: It's , you know , it's talking to the customers , making sure we're meeting their needs . But I would say that area is advancing .
Speaker #3: It's advancing quite well . And we continue to find opportunities . I think the challenge that we're going to have moving forward is to make sure that we focus and we allocate the resources we have into the right opportunities where we can get the bigger bang for our buck .
Speaker #3: But it's going pretty well and hopefully more to come on on that one . Thank you for the question .
Speaker #1: Thank you . This concludes the question and answer session . I would now like to turn it back to Guillermo Novo for closing remarks .
Speaker #3: Well , thank you everyone for your participation and interest . As I said , I want to congratulate the team . A lot of very dynamic external environment , and I think the we've delivered a lot of the things that that we committed to .